Valeant 3s end at 103.75 bid, 4s end at 104.75 bid; Amgen converts resist slide with stock

By Ronda Fears

Nashville, Nov. 14 - Nearly $1 billion of new paper was circulating in the convertible market by Friday but it was still a very slow trading session. Small deal size, tight terms and the stock slide contributed to a sharp decline in activity, traders said.

All the new deals went well, by the accounts of those involved on the sellside, but AmeriCredit Corp. was still lagging under par.

Given that the deal sizes were on the small side - $200 million was the top deal amount, although there were three at that level - traders said activity in several of the deals this week would be short-lived, particularly for Casual Male Retail Group Inc.'s $85 million issue and Radisys Corp.'s $75 million issue.

Terms also were not enticing enough to force some fund managers who were fully invested to sell something to buy the new paper.

Radisys Corp.'s small $75 million also priced aggressively, at 1.375%, up 27%. Nonetheless, by the end of the day the greenshoe was exercised in full, raising the deal to $100 million.

Those two additions on Friday followed final terms generally on the aggressive end of price talk on deals from the Chesapeake Energy Corp., Casual Male and AmeriCredit.

"I'm about fully invested, and haven't been as anxious to jump on the new issues as some. The only one of those mentioned we bought was the Chesapeake," said Ted Southworth of Northern Trust Co.

"I would have liked to look at Valeant, or ICN, more thoroughly, but had too many other things going on."

Valeant was described by several market sources, on both sides, as the deal of the week.

The two-parter priced aggressively for the most part, but was lifted from the 102 gray market levels right out of the gate.

Tranche A, $200 million of non-callable 6.75-year subordinated notes, was issued at par to yield 3.0% with 40% initial conversion premium - at the aggressive end of price talk for 3.0% to 3.5%, up 35% to 40%.

Tranche B, $200 million of 10-year subordinated notes non-callable for 7.5 years, was issued at par to yield 4.0% with a 40% initial conversion premium - at the middle of yield talk for 3.75% to 4.25% and the aggressive end of premium talk for 35% to 40%.

But with the aggressive terms and trouble that the old ICN - the company's former name - has seen, there were some skeptics.

"Some people were jockeying around with the new Valeant deals," said Stuart Novick, convertible analyst at Citigroup.

"It sounds like a lot of folks are considering the issues but they're still a little uncomfortable owning the old ICN. We kind of feel that with a new management team that they're worth a shot."

There were inquiries about Amgen early Friday, Novick added, on an article in the Wall Street Journal, but traders said the convertibles held up very well against the slide in the underlying stock.

The Wall Street Journal's Heard on the Street column suggested Amgen is finally starting to make some investors "nervous." The article listed on a series of long-term threats, including uncertainties involving Medicare reimbursements for some of its top drugs, increased competition and potential patent threats.

"The word nervous caused some concern just by itself," said a dealer.

But there was little activity in the convertibles, he said. Amgen's 0% due 2032 was marked off 0.5 point to 74.25 bid, 74.5 offered versus a stock price of $58.38.

Amgen shares lost $1.70 on the day, or 2.84%, to close at $58.25.

The dealer said that there has been recent concern about Amgen before the headlines, mainly focused on the company's size and ability to keep growing while maintaining profits. He said it boils down to concern over valuation in light of the growth rates seen so far and the company trimming its guidance for 2003 sales.

Some bits of airline paper also traded Friday, as Northwest Airlines Corp. and ExpressJet Holdings Inc. were mentioned. Both were off slightly.

The reaction by Ford Motor Co. convertible holders to an action by Moody's Investors Service was non-existent, traders said, particularly after the massive buying earlier this week on Standard & Poor's downgrade and changing the credit outlook to stable from negative.

Moody's confirmed Ford's ratings firmly in investment-grade territory at Baa1, but said it is keeping a negative outlook. Fitch Ratings also confirmed its ratings for Ford on Friday.

Moody's applauded Ford for progress in its financial and operational objectives, along with maintaining exceptional liquidity.

But Moody's added that Ford will continue to face formidable challenges - including achieving adequate profitability and debt protection measures in a U.S. market characterized by continuing high incentives and restructuring European operations - that could make it difficult to sustain the current rating.

Don Leclair, Ford chief financial officer, said the company was pleased with Fitch and Moody's decisions to confirm their ratings, but did not comment on the outlooks. He said the company remains "fully committed to our 2003 financial milestones and business plans, and are forecasting improvement in automotive and total profitability in 2004. Further details about 2004 will be provided in January."

Ford shares closed off 18c, or 1.37%, to $12.96.

Ford's 6.5% convertible trust preferred edged 0.45 point lower, or 0.92%, to 48.35 on lower-than-average volume.

Jeffrey Rosenberg, head of the credit strategy team at Banc of America Securities, said when S&P released its much anticipated decision regarding Ford earlier this week, which amounted to a cut to BBB-, Ford spreads snapped tighter, coming in 40 basis points immediately - close to their late October tights.

Ford's benchmark 10-year was bid at 257 bps over Treasuries as of Thursday's close, after trading as wide as 312 bps over earlier in the week, Rosenberg said. Moreover, the strategist said the bid in Ford paper ignited the rest of the high-grade bond market, leading spreads across most sectors tighter.

High-yield spreads also continue to tighten.

Next week, convertible players are looking for General Cable Corp.'s deal. Many expect its price talk will likely be tightened before it prices.

General Cable is pitching $75 million of redeemable convertible preferred stock as part of a $640 million refinancing plan, which includes a $240 million senior secured asset based revolving credit facility, $275 million of senior unsecured notes and $50 million of common stock.

The converts are talked with a dividend of 6.5% to 7.0% and initial conversion premium between 18% and 22%.

A roadshow is under way for the $275 million of senior notes due 2010 and is expected to wrap up on Monday, with the pricings soon to follow.

On the horizon, the market is looking for indicative terms to emerge perhaps next week on Komag Inc.'s registered deal. Komag plans to offer $70 million of 20-year convertible notes and 6 million shares of common stock, once the registrations clear the Securities and Exchange Commission.

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